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InBev filed a preliminary consent solicitation statement with the SEC on Monday, an attempt to remove the Anheuser-Busch board of directors “and provide Anheuser-Busch shareholders an opportunity to have a direct voice in the proposed combination with InBev”.
dealReporter canvassed Anheuser-Busch investors, and the consensus among large shareholders interviewed was that InBev should, and will likely increase its offer between 10-15%, to a price in the low USD 70s. Although large shareholders interviewed by this service may agree in principle that InBev needs to bump its USD 65 per share bid for the company, Anheuser-Bush’s price expectations could go beyond what holders believe is a fair premium.
One line of thinking is that with Anheuser-Busch’s new cost-cutting strategy, the stock’s value independent of a takeover premium is in the low-to-mid USD 60s. In its presentation justifying its strategy, Anheuser-Busch reported an annual EPS target for 2009 of USD 3.90, and a forward P/E of slightly higher than 16 would translate to a trading price in the low-to-mid USD 60s.
Assuming that Anheuser-Busch expects a 30-40% premium to its current market value, the company could demand in excess of USD 80 a share in the event of a sale. While some large Anheuser-Busch shareholders believe that a low 70s price tag is fair, the company could see this as a mere 10% premium to its trading price.
A top Anheuser-Busch shareholder said he did not believe a sale price at USD 80 per share to be a realistic expectation, and noted that the company’s valuation, when adjusting for its cost-cutting strategy, needs to be further discounted for execution risk. “There is some uncertainty in terms of how deliverable [the cost-cutting initiatives] are and how long they would take to deliver,” he said. After discounting for the risk, the shareholder said he believed the company should trade around USD 57 a share independent of a takeover premium. A second leading shareholder, who also believes the stock’s worth to be in the mid-50s, said he was of the opinion that the company will ultimately be sold slightly north of USD 70 per share.
However it has been argued that it is unlikely Anheuser-Busch would issue revised estimates without a high degree of confidence that it can execute on them. As earnings are reported each quarter, and functioning as a checkpoint for investors to monitor the progress of its execution, it has been said that Anheuser-Busch likely internally adjusted its estimates for risk before outlining its strategy and performance targets.
Supportive of Anheuser-Busch’s reaction to the unsolicited suitor so far, the first shareholder commented that he would have been disappointed if the company had accepted InBev’s current offer. “However we are viewing [Anheuser’s strategy thus far] as a defense, and not a viable standalone strategy,” he said. A defense, he continued to say, designed to raise the playing field and push InBev to increase its bid before negotiating.
It was said that InBev is not yet at the point where it is considering a price bump. InBev’s CEO Carlos Brito met with US lawmakers in mid-June, and it was offered that he would likely be making a second trip soon.
On 1 July, InBev reiterated its belief that its USD 65 per share bid “reflects the full and fair value of [Anheuser-Busch]”, and”. Some shareholders have commented that InBev’s hostile moves might only do itself a disservice. Anheuser investors might be reluctant to support Inbev’s hostile efforts. Despite touting its desire for a friendly deal, investors might recall that after Interbrew and its smaller Brazil-based rival Ambev merged in 2004, within a year the latter was ultimately heading the company. “Within 12 months the Brazilians had knifed almost everyone in the back, so they would absolutely do it again,” the first shareholder commented. This, it was said, may prompt Anheuser-Busch shareholders to think twice before trusting, or supporting InBev with any hostile efforts, or to negotiate the best transaction terms possible with InBev.
The first shareholder commented that Anheuser-Busch’s decision to reject InBev’s unsolicited proposal and instead turn to its own cost-cutting strategy shows that it may be strategically positioning itself to draw more value out of the suitor. The shareholder said that if the company was adamant about continuing as an independent entity, it would likely be taking initiatives such as selling non-core assets including its amusement parks and smaller brands, and fleet of private jets. Then, he said, Anheuser could increase its dividend and return cash to shareholders, restoring their faith in holding onto the stock. “Shareholders will get impatient if all they have is a promise for the future,” he said.
Inbev is signaling that its takeover efforts could turn hostile, and will eventually be meeting with Anheuser shareholders to further market its acquisition attempts, the first shareholder said. Yet despite InBev’s hostile maneuvers, the consensus among shareholders interviewed was that by bumping its price now, the European suitor has a better chance of closing a deal than going straight to investors with a tender offer.
Anhueser-Busch and InBev have previously declined to comment on the situation.
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